Morgan Stanley Bets on Nvidia's Tariff Resilience Amid AI Boom

Despite ongoing concerns about tariffs, Morgan Stanley remains optimistic about Nvidia's potential to overcome such challenges. As artificial intelligence demand surges, Nvidia stands to benefit due to its agile supply chain strategies. The investment firm has reaffirmed its 'overweight' rating on Nvidia, setting a target price of $162.

Led by Joseph Moore, Morgan Stanley analysts have assessed the 10% hardware tariff that might escalate to 32% in 90 days, observing minimal direct impact on Nvidia. For its data center clients, a current tariff only influences roughly two percent of its revenue, potentially rising to about six to six and a half percent if tariffs increase. This minimal impact is mitigated by Nvidia’s strategic production shifts, such as relocating some manufacturing to Mexico, thus circumventing tariff burdens. High-end products like the GB200, primarily assembled in North America, are even less susceptible to these changes.

Remarkably, Nvidia's demand outlook remains robust. The company's Blackwell series has sold out, showcasing low price sensitivity among buyers. Analysts have noted a significant rise in demand for AI inference capabilities, driving some clients to repurpose their GPUs from training purposes to inference.

While some uncertainty lingers around the potential imposition of future semiconductor tariffs, Morgan Stanley suggests that Nvidia may largely withstand such impacts. If introduced, tariffs on components like TSMC's wafers could impose a five percent revenue tax on Nvidia's data center operations, a challenge Nvidia is well-poised to manage. Meanwhile, trade tensions escalate as China contemplates increased levies on U.S. semiconductors, though specifics remain unclear given the global production footprint of such products.

Despite a positive outlook for Nvidia, analysts warn of broader macroeconomic risks that could affect the company. A global economic downturn might tighten capital accessibility, potentially impacting Nvidia's operations. Concerns also extend beyond tariffs, focusing on export controls that could disrupt dealings with multinational clients.

Across the semiconductor sector, Morgan Stanley anticipates performance largely tracking Nvidia's trajectory. Nvidia's stock's performance could influence peers and suppliers, with its current valuation pegged at 20 times the 2025 forecasted earnings. If Nvidia's stock stumbles, its industry counterparts could feel the pressure, cascading through the hardware supply chain.